‘Double legal process’ stalls defaulted loan recovery for years
While the original case itself may take 5-10 years to conclude, the execution case required to enforce the verdict in a bank’s favour and sell the mortgaged assets also takes several more years.
Recovering defaulted loans is a more complicated process for banks than one might think. The verdict for a case with a financial loan court takes years. But when a bank gets the verdict in its favour, it cannot yet go and auction the mortgaged properties to recover the loan defaulted. It must then file another case – called an execution case – for that purpose and this takes another few years before being disposed of.
While the original case itself may take 5-10 years to conclude, the execution case required to enforce the verdict in a bank's favour and sell the mortgaged assets also takes several more years.
Bank officials say this "double legal process" significantly prolongs and complicates loan recovery, causing banks to incur substantial losses as they pursue legal procedures for years.
Experts in banking law argue that the provision requiring a separate execution case after obtaining a verdict should now be amended. In many countries, court rulings on defaulted loans can be directly enforced without requiring a separate process.
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According to Supreme Court statistics, 33,406 such execution cases are currently pending in courts (joint district judge courts) across the country, involving approximately Tk57,000 crore in bank dues. Among these, 1,108 cases have been pending for over a decade, involving more than Tk10,000 crore. Nearly 14,000 cases have been pending for over five years, involving about Tk22,000 crore.
As of December last year, around 78,000 cases involving over Tk2,50,000 crore in defaulted loans were pending in financial loan courts.
How execution cases drag on for years
In one case, ARM Food Ltd took a Tk57 crore loan from a Janata Bank branch in Narayanganj in 2004. After the loan defaulted, the bank filed a case in 2009, claiming about Tk94 crore with interest. In 2016, the court ruled in favour of the bank, allowing the mortgaged property to be auctioned.
To enforce the verdict, the bank filed an execution case in July 2016. However, the case remains unresolved, preventing the auction of nearly two acres of land and a house held as collateral.
A lawyer for the bank said the original case took about seven years to resolve, while the execution case has remained pending for nearly a decade due to a High Court stay order obtained by the borrower.
Legal complications
Experts say execution cases follow nearly the same legal procedures as the original cases. After filing an execution case under Sections 26, 27, and 28 of the Financial Loan Court Act, 2003, the court issues notices asking why the mortgaged property should not be auctioned.
Defaulters often exploit legal loopholes to delay proceedings, taking years to respond to summons and using influential lawyers to prolong hearings. Although the law requires execution cases to be resolved within a month and auctions to be conducted within 15 days, this is rarely followed in practice.
Defaulters also frequently file writ petitions in the High Court, which often issues stay orders and rules asking why the execution case should not be dismissed. These rulings remain unresolved for years, effectively halting the original execution process.
Extent of High Court stays
According to Supreme Court sources, as of February, 4,809 out of 33,406 execution cases, involving over Tk13,000 crore, are currently stayed by the High Court. Among them, 806 cases have remained stayed for more than five years.
In another case, LSG Leather Products defaulted on a Tk39 crore loan from AB Bank in 2008. The court ruled in favour of the bank in 2017, but the execution case was stayed by the High Court in 2018. Since the rule issued by the court remains unresolved, the mortgaged property cannot be auctioned.
What could be the solution
Former Bangladesh Bank deputy governor and former AB Bank chairman Mohammad A (Rumi) Ali said in countries such as the US, the UK, Switzerland, Singapore, and Malaysia, court verdicts in loan recovery cases are directly enforced by relevant authorities without requiring separate execution cases.
He noted that Bangladesh's current system – where a verdict must be followed by another case and then routed through district administration – is unnecessarily complex and needs reform.
He added that the shortage of judicial manpower already delays case disposal, and requiring a separate case for enforcement only worsens the situation. Simplifying the process would benefit both banks and borrowers as prolonged delays increase liabilities for borrowers due to accumulated interest and penalties.
Advocate Ahsanul Karim, a constitutional and company law expert, told The Business Standard that the law was enacted in 2003 – nearly two decades ago – but has yet to be updated to meet present-day needs. He said that once a law is enacted, it should be revised periodically in line with changing realities.
He noted that the Money Loan Court Act is widely applied and closely tied to the country's overall economic system. Due to various minor flaws in the law, banks face significant difficulties and incur unnecessary costs and delays. Therefore, he emphasised that amending the law has now become an urgent necessity.
